Written by Jeff Nielson Thursday, 04 August 2011 11:42
Naturally, the price-ratio where we can come closest to a precise estimate is the gold/silver price ratio, since we have nearly 5,000 years of price data to guide us – during which time the average gold/silver price ratio has been 15:1. However, as previously noted, in relative terms (i.e. “relative” to gold) there has not been this little silver in the world in thousands of years. This ensures that at some point before any long-term equilibrium can be reached that the price-ratio must descend to well-below that 5,000-year equilibrium.
A very conservative estimate for that ratio would be 10:1. In terms of above-ground silver-to-gold, the figures I have heard as estimates range from a 6:1 ratio and lower. With industrial demand for silver “massive” and rising, we know this supply-ratio will continue to shrink (in silver’s favor), since so much of the “industrial” silver is not recycled, but essentially “consumed”.
With today’s price-ratio still being at an extreme level of more than 40:1, this explains why all informed commentators in the precious metals sector expect silver to significantly outperform gold in the future (while gold itself “outperforms” all other asset classes). Let me note that I am not advocating that bullion-holders start swapping their gold for silver.
While we know that the gold/silver price ratio is going to move drastically in silver’s favor, we cannot predict with certainty over what time-horizon this adjustment will take place. Given that we are acquiring our bullion as financial insurance, and given that we could need such “insurance” at literally any moment, all prudent investors will hold significant amounts of gold and silver. For those who consider themselves “gold heavy” today, such individuals should simply focus on silver with their future purchases of bullion.
More selfishly, when readers ask me in the future “how high will the price of silver go?”, my answer will now be as follows:
1 barrel of oil = 2 ounces of silver
1 ounce of gold = 10 ounces of silver
1 house = 500 ounces of silver
The best “service” which I and other precious metals commentators can perform for our readers is to divorce their thinking on “prices” away from the ludicrous/meaningless nominal numbers attached to the banksters’ fraudulent paper currencies – and back toward “pricing” assets in some sort of rational manner to each other.
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